GUIDE TO THE IPO PROCESS

1. GUIDE TO THE IPO PROCESS OCTOBER 2, 2001 MBA 601

2. What is an IPO?

3. Types of Initial Public Offerings • Stock • Debt

4. Why an IPO? • Improved Financial Condition • Greater Marketability • Improved Value • Provides Capital to Sustain Growth • A Path to Mergers and Acquisitions • Listing on a Stock Exchange • Enhanced Corporate Image and Increased Employee Participation

5. What are the Drawbacks? • Loss of Control • Loss of Privacy • Limiting Management’s Freedom to Act • Periodic Reporting • Initial and Ongoing Expenses • Shareholder Expectations • Restrictions on Selling Existing Shareholders’ Shares • Fiduciary Responsibilities

6. When is the Right Time? • Is the Company the right size? • As a rule of thumb, companies generally must have revenue of $20 million or earnings of $1 million. • Internet companies were an exception to the rule. In such instances, a particularly innovative product may suffice.

7. When is the Right Time? (Continued) • Is the management team qualified and ready to manage a public company? • Must deal effectively with outside financial and credit analysts, the financial press, and shareholders. • Must command creditability in the community • Must give up privacy

8. When is the Right Time? (Continued) • Does the Company have adequate growth potential? • Underwriters typically demand an expected growth rate of 15%-25% annually before they will consider taking a company public. • Exceptions are made for companies with continuous steady performance (I.e. low risk to investor).

9. When is the Right Time? (Continued) • Are the Company’s information systems sufficiently sophisticated? • Is the market ready? • Are internal controls sufficient? • Is your business plan sound? • Any changes necessary in capital structure, shares authorized, contracts, employment agreements, etc.?

10. Who are the Participants in the Process? • Executive Management • Independent Auditors • Company’s Attorneys • Company’s Underwriters and Their Attorneys and Accountants • Company’s Financial Printer • The Securities and Exchange Commission

11. What is the IPO Process and Timeline?

12. Example of Timetable for an Initial Public Offering. Day 1 First “All-Hands” Meeting Day 45 First Draft of Registration Statement Day 50 Second “All-Hands” Meeting—Revisions Agreed On Day 55 Third “All-Hands” Meeting Day 60 Filing of Registration Statement with the SEC Day 70–100 Road Show Day 90 Receipt of SEC Comment Letter Day 90–110 Revisions and Pricing Day 115 Effective Date Day 120 Closing

13. How are the Responsibilities Allocated Among the Working Group?

14. What are the Costs? • Underwriting Commission (typically 6%-10% of offering—lower for debt offerings than equity offerings) • Reimbursement of Underwriter expenses (e.g. their attorney’s fees) • The Company’s Attorney’s Fees • Printing Costs (Often in Excess of $100K)

15. What are the Costs? (Continued) • Accountant’s Fees (vary significantly as result of number of audits required) • Filing Fees (SEC, NASD, etc.)

16. What Happens After The Filing? • Periodic Reporting • Annual Report on Form 10-K • Quarterly Report on Form 10-Q • 8-K • Investor Relations Communications • Fair Disclosure Rules